War Collectivism in World War I

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First
published in A New History of Leviathan, Ronald Radosh
and Murray N. Rothbard, eds., New York: E.P. Dutton & Co., 1972.

More
than any other single period, World War I was the critical watershed
for the American business system. It was a “war collectivism,”
a totally planned economy run largely by big-business interests
through the instrumentality of the central government, which served
as the model, the precedent, and the inspiration for state corporate
capitalism for the remainder of the twentieth century.

That inspiration
and precedent emerged not only in the United States, but also
in the war economies of the major combatants of World War I. War
collectivism showed the big-business interests of the Western
world that it was possible to shift radically from the previous,
largely free-market, capitalism to a new order marked by strong
government, and extensive and pervasive government intervention
and planning, for the purpose of providing a network of subsidies
and monopolistic privileges to business, and especially to large
business, interests. In particular, the economy could be cartelized
under the aegis of government, with prices raised and production
fixed and restricted, in the classic pattern of monopoly; and
military and other government contracts could be channeled into
the hands of favored corporate producers. Labor, which had been
becoming increasingly rambunctious, could be tamed and bridled
into the service of this new, state monopoly-capitalist order,
through the device of promoting a suitably cooperative trade unionism,
and by bringing the willing union leaders into the planning system
as junior partners.

In many ways,
the new order was a striking reversion to old-fashioned mercantilism,
with its aggressive imperialism and nationalism, its pervasive
militarism, and its giant network of subsidies and monopolistic
privileges to large business interests. In its twentieth-century
form, of course, the New Mercantilism was industrial rather than
mercantile, since the industrial revolution had intervened to
make manufacturing and industry the dominant economic form. But
there was a more significant difference in the New Mercantilism.
The original mercantilism had been brutally frank in its class
rule, and in its scorn for the average worker and consumer.[2] Instead, the new dispensation cloaked
the new form of rule in the guise of promotion of the overall
national interest, of the welfare of the workers through the new
representation for labor, and of the common good of all citizens.
Hence the importance, for providing a much-needed popular legitimacy
and support, of the new ideology of twentieth-century liberalism,
which sanctioned and glorified the new order. In contrast to the
older laissez-faire liberalism of the previous century, the new
liberalism gained popular sanction for the new system by proclaiming
that it differed radically from the old, exploitative mercantilism
in its advancement of the welfare of the whole society. And in
return for this ideological buttressing by the new “corporate”
liberals, the new system furnished the liberals the prestige,
the income, and the power that came with posts for the concrete,
detailed planning of the system as well as for ideological propaganda
on its behalf.

For their
part, the liberal intellectuals acquired not only prestige and
a modicum of power in the new order, they also achieved the satisfaction
of believing that this new system of government intervention was
able to transcend the weaknesses and the social conflicts that
they saw in the two major alternatives: laissez-faire capitalism
or proletarian, Marxian socialism. The intellectuals saw the new
order as bringing harmony and cooperation to all classes on behalf
of the general welfare, under the aegis of big government. In
the liberal view, the new order provided a middle way, a “vital
center” for the nation, as contrasted to the divisive “extremes”
of left and right.

I.

We have no
space here to dwell on the extensive role of big business and
business interests in getting the United States into World War
I. The extensive economic ties of the large business community
with England and France, through export orders and through loans
to the Allies, especially those underwritten by the politically
powerful J.P. Morgan & Co. (which also served as agent to
the British and French governments), allied to the boom brought
about by domestic and Allied military orders, all played a leading
role in bringing the United States into the war. Furthermore,
virtually the entire Eastern business community supported the
drive toward war.[3]

Apart from
the role of big business in pushing America down the road to war,
business was equally enthusiastic about the extensive planning
and economic mobilization that the war would clearly entail. Thus,
an early enthusiast for war mobilization was the United States
Chamber of Commerce, which had been a leading champion of industrial
cartelization under the aegis of the federal government since
its formation in 1912. The Chamber’s monthly, The Nation’s
Business, foresaw in mid-1916 that a mobilized economy would
bring about a sharing of power and responsibility between government
and business. And the chairman of the U.S. Chamber’s Executive
Committee on National Defense wrote to the du Ponts, at the end
of 1916, of his expectation that “this munitions question would
seem to be the greatest opportunity to foster the new spirit”
of cooperation between government and industry.[4]

The first
organization to move toward economic mobilization for war was
the Committee on Industrial Preparedness, which in 1916 grew out
of the Industrial Preparedness Committee of the Naval Consulting
Board, a committee of industrial consultants to the Navy dedicated
to considering the ramifications of an expanding American Navy.
Characteristically, the new CIP was a closely blended public-private
organization, officially an arm of the federal government but
financed solely by private contributions. Moreover, the industrialist
members of the committee, working patriotically without fee, were
thereby able to retain their private positions and incomes. Chairman
of the CIP, and a dedicated enthusiast for industrial mobilization,
was Howard E. Coffin, vice-president of the important Hudson Motor
Co. of Detroit. Under Coffin’s direction, the CIP organized a
national inventory of thousands of industrial facilities for munitions-making.
To propagandize for this effort, christened “industrial preparedness,”
Coffin was able to mobilize the American Press Association, the
Associated Advertising Clubs of the World, the august New York
Times, and the great bulk of American industry.[5]

The CIP was
succeeded, in late 1916, by the fully governmental Council of
National Defense, whose Advisory Commission – largely consisting
of private industrialists – was to become its actual operating
agency. (The Council proper consisted of several members of the
Cabinet.) President Wilson announced the purpose of the CND as
organizing “the whole industrial mechanism… in the most effective
way.” Wilson found the Council particularly valuable because it
“opens up a new and direct channel of communication and cooperation
between business and scientific men and all departments of the
Government…”[6] He also hailed the personnel of the
Council’s Advisory Commission as marking “the entrance of the
nonpartisan engineer and professional man into American governmental
affairs” on an unprecedented scale. These members, declared the
President grandiloquently, were to serve without pay, “efficiency
being their sole object and Americanism their only motive.”[7]

Exulting
over the new CND, Howard Coffin wrote to the du Ponts in December,
1916, that “it is our hope that we may lay the foundation for
that closely knit structure, industrial, civil and military, which
every thinking American has come to realize is vital to the future
life of this country, in peace and in commerce, no less than in
possible war.”[8]

Particularly
influential in establishing the CND was Secretary of the Treasury
William Gibbs McAdoo, son-in-law of the President, and formerly
promoter of the Hudson and Manhattan Railroad and associate of
the Ryan interests in Wall Street.[9] Head of the Advisory Commission was
Walter S. Gifford, who had been one of the leaders of the Coffin
Committee and had come to government from his post as chief statistician
of the American Telephone and Telegraph Co., a giant monopoly
enterprise in the Morgan ambit. The other “nonpartisan” members
were: Daniel Willard, president of the Baltimore and Ohio Railroad;
Wall Street financier Bernard M. Baruch; Howard E. Coffin; Julius
Rosenwald, president of Sears, Roebuck and Co.; Samuel Gompers,
president of the AF of L; and one scientist and one leading surgeon.

Months before
American entry into the war, the Advisory Commission of the CND
designed what was to become the entire system of purchasing war
supplies, the system of food control, and censorship of the press.
It was the Advisory Commission that met with the delighted representatives
of the various branches of industry, and told the businessmen
to form themselves into committees for sale of their products
to the government, and for the fixing of the prices of these products.
Daniel Willard was, unsurprisingly, put in charge of dealing with
the railroads, Howard Coffin with munitions and manufacturing,
Bernard Baruch with raw materials and minerals, Julius Rosenwald
with supplies, and Samuel Gompers with labor. The idea of establishing
committees of the various industries, “to get their resources
together,” began with Bernard Baruch. CND commodity committees,
in their turn, invariably consisted of the leading industrialists
in each field; these committees would then negotiate with the
committees appointed by industry.[10]

At the recommendation
of the Advisory Commission, Herbert Clark Hoover was named head
of the new Food Administration. By the end of March, 1917, the
CND appointed a Purchasing Board to coordinate government’s purchases
from industry. Chairman of this Board, the name of which was soon
changed to the General Munitions Board, was Frank A. Scott, a
well-known Cleveland manufacturer, and president of Warner &
Swasey Co.

Yet centralized
mobilization was proceeding but slowly through the tangle of bureaucracy,
and the United States Chamber of Commerce urged Congress that
the director of the CND “should be given power and authority in
the economic field analogous to that of the chief of state in
the military field.”[11] Finally, in early July, the raw materials,
munitions, and supplies departments were brought together under
a new War Industries Board, with Scott as Chairman, the board
that was to become the central agency for collectivism in World
War I. The functions of the WIB soon became the coordinating of
purchases, the allocation of commodities, and the fixing of prices
and priorities in production.

Administrative
problems beset the WIB, however, and a satisfactory “autocrat”
was sought to rule the entire economy as chairman of the new organization.
The willing autocrat was finally discovered in the person of Bernard
Baruch in early March, 1918. With the selection of Baruch, urged
strongly upon President Wilson by Secretary McAdoo, war collectivism
had achieved its final form.[12] Baruch’s credentials for the task
were unimpeachable; an early supporter of the drive toward war,
Baruch had presented a scheme for industrial war mobilization
to President Wilson as early as 1915.

The WIB developed
a vast apparatus that connected to the specific industries through
commodity divisions largely staffed by the industries themselves.
The historian of the WIB, himself one of its leaders, exulted
that the WIB had established

a system
of concentration of commerce, industry, and all the powers of
government that was without compare among all the other nations…
It was so interwoven with the supply departments of the army
and navy, of the Allies, and with other departments of the Government
that, while it was an entity of its own… its decisions and
its acts… were always based on a conspectus of the whole situation.
At the same time, through the commodity divisions and sections
in contact with responsible committees of the commodities dealt
with, the War Industries Board extended its antennae into the
innermost recesses of industry. Never before was there such
a focusing of knowledge of the vast field of American industry,
commerce, and transportation. Never was there such an approach
to omniscience in the business affairs of a continent.[13]

Big-business
leaders permeated the WIB structure from the board itself down
to the commodity sections. Thus, Vice-Chairman Alexander Legge
came from International Harvester Co.; businessman Robert S. Brookings
was the major force in insisting on price-fixing; George N. Peek,
in charge of finished products, had been vice-president of Deere
& Co., a leading farm equipment manufacturer. Robert S. Lovett,
in charge of priorities, was chairman of the board of Union Pacific
Railroad, and J. Leonard Replogle, Steel Administrator, had been
president of the American Vanadium Co. Outside of the direct WIB
structure, Daniel Willard of the Baltimore & Ohio was in charge
of the nation’s railroads, and big businessman Herbert C. Hoover
was the “Food Czar.”

In the granting
of war contracts, there was no nonsense about competitive bidding.
Competition in efficiency and cost was brushed aside, and the
industry-dominated WIB handed out contracts as it saw fit.

Any maverick
individualistic firm that disliked the mandates and orders of
the WIB was soon crushed between the coercion wielded by government
and the collaborating opprobrium of his organized business colleagues.
Thus, Grosvenor Clarkson writes:

Individualistic
American industrialists were aghast when they realized that
industry had been drafted, much as manpower had been… Business
willed its own domination, forged its bonds, and policed its
own subjection. There were bitter and stormy protests here and
there, especially from those industries that were curtailed
or suspended… [But] the rents in the garment of authority
were amply filled by the docile and cooperative spirit of industry.
The occasional obstructor fled from the mandates of the Board
only to find himself ostracized by his fellows in industry.[14]

One of the
most important instrumentalities of wartime collectivism was the
Conservation Division of the WIB, an agency again consisting largely
of leaders in manufacturing. The Conservation Division had begun
as the Commercial Economy Board of the CND, the brainchild of
its first chairman, Chicago businessman A. W. Shaw. The Board,
or Division, would suggest industrial economies, and encourage
the industry concerned to establish cooperative regulations. The
Board’s regulations were supposedly “voluntary,” a voluntarism
enforced by “the compulsion of trade opinion – which automatically
policed the observance of the recommendations.” For “a practice
adopted by the overwhelming consent and even insistence of…
[a man's] fellows, especially when it bears the label of patriotic
service in a time of emergency, is not lightly to be disregarded.”[15]

In this way,
in the name of wartime “conservation,” the Conservation Division
set out to rationalize, standardize, and cartelize industry in
a way that would, hopefully, continue permanently after the end
of the war. Arch W. Shaw summed up the Division’s task as follows:
to drastically reduce the number of styles, sizes, etc., of the
products of industry; to eliminate various styles and varieties;
to standardize sizes and measures. That this ruthless and thoroughgoing
suppression of competition in industry was not thought of as a
purely wartime measure is made clear in this passage by Grosvenor
Clarkson:

The World
War was a wonderful school. . . . It showed us how so many things
may be bettered that we are at a loss where to begin with permanent
utilization of what we know The Conservation Division alone
showed that merely to strip from trade and industry the lumber
of futile custom and the encrustation of useless variety would
return a good dividend on the world’s capital… It is, perhaps,
too much to hope that there will be any general gain in time
of peace from the triumphant experiment of the Conservation
Division. Yet now the world needs to economize as much as in
war.[16]

Looking forward
to future cartelization, Clarkson declared that such peacetime
“economizing… implies such a close and sympathetic affiliation
of competitive industries as is hardly possible under the decentralization
of business that is compelled by our antitrust statutes.”

Bernard Baruch’s
biographer summarized the lasting results of the compulsory “conservation”
and standardization as follows:

Wartime
conservation had reduced styles, varieties, and colors of clothing.
It had standardized sizes… It had outlawed 250 different types
of plow models in the U.S., to say nothing of 755 types of drills…
mass production and mass distribution had become the law of
the land… This, then, would be the goal of the next quarter
of the twentieth century: “To Standardize American Industry”;
to make of wartime necessity a matter of peacetime advantage.[17]

Not only
the Conservation Division, but the entire structure of wartime
collectivism and cartelization constituted a vision to business
and government of a future peacetime economy. As Clarkson frankly
put it:

It is little
wonder that the men who dealt with the industries of a nation…
meditated with a sort of intellectual contempt on the huge hit-and-miss
confusion of peacetime industry, with its perpetual cycle of
surfeit and dearth and its internal attempt at adjustment after
the event. From their meditations arose dreams of an ordered
economic world.

They conceived
of America as “commodity sectioned” for the control of world
trade. They beheld the whole trade of the world carefully computed
and registered in Washington, requirements noted, American resources
on call, the faucets opened or closed according to the circumstances.
In a word, a national mind and will confronting international
trade and keeping its own house in business order.[18]

Heart and
soul of the mechanism of control of industry by the WIB were its
sixty-odd commodity sections, committees supervising the various
groups of commodities, which were staffed almost exclusively by
businessmen from the respective industries. Furthermore, these
committees dealt with over three hundred “war service committees”
of industry appointed by the respective industrial groupings under
the aegis of the Chamber of Commerce of the United States. It
is no wonder that in this cozy atmosphere, there was a great deal
of harmony between business and government. As Clarkson admiringly
described it:

Businessmen
wholly consecrated to government service, but full of understanding
of the problems of industry, now faced businessmen wholly representative
of industry… but sympathetic with the purpose of government.[19]

And:

The commodity
sections were business operating Government business for the
common good… The war committees of industry knew, understood,
and believed in the commodity chiefs. They were of the same
piece.[20]

All in all,
Clarkson exulted that the commodity sections were “industry mobilized
and drilled, responsive, keen, and fully staffed. They were militant
and in serried ranks.”[21]

The Chamber
of Commerce was particularly enthusiastic over the war service
committee system, a system that was to spur the trade association
movement in peacetime as well. Chamber President Harry A. Wheeler,
vice-president of the Union Trust Co. of Chicago, declared that:

Creation
of the War Service Committees promises to furnish the basis
for a truly national organization of industry whose preparations
and opportunities are unlimited. . . . The integration of business,
the expressed aim of the National Chamber, is in sight. War
is the stern teacher that is driving home the lesson of cooperative
effort.[22]

The result
of all this new-found harmony within each industry, and between
industry and government, was to “substitute cooperation for competition.”
Competition for government orders was virtually nonexistent, and
“competition in price was practically done away with by Government
action. Industry was for the time in… a golden age of harmony,”
and freed from the menace of business losses.[23]

One of the
crucial functions of wartime planning was price-fixing, set in
the field of industrial commodities by the Price-Fixing Committee
of the War Industries Board. Beginning with such critical areas
as steel and copper early in the war and then inexorably expanding
to many other fields, the price-fixing was sold to the public
as the fixing of maximum prices in order to protect the public
against wartime inflation. In fact, however, the government set
the price in each industry at such a rate as to guarantee a “fair
profit” to the high-cost producers, thereby conferring a large
degree of privilege and high profits upon the lower-cost firms.[24] Clarkson admitted that this system
was a tremendous invigoration of big business and hard on small
business. The large and efficient producers made larger profits
than normally and many of the smaller concerns fell below their
customary returns.[25]

But the higher-cost
firms were largely content with their “fair profit” guarantee.

The attitude
of the Price-Fixing Committee was reflected in the statement of
its Chairman, Robert S. Brookings, a retired lumber magnate, addressed
to the nickel industry: “We are not in an attitude of envying
you your profits; we are more in the attitude of justifying them
if we can. That is the way we approach these things.”[26]

Typical of
the price-fixing operation, was the situation in the cotton textile
industry. Chairman Brookings reported in April, 1918, that the
cotton goods committee had decided to “get together in a friendly
way” to try to “stabilize the market.” Brookings appended the
feeling of the larger cotton manufacturers that it was better
to fix a high long-run minimum price than to take full short-run
advantage of the very high prices then in existence.[27]

The general
enthusiasm of the business world, and especially big business,
for the system of war collectivism can now be explained. The enthusiasm
was a product of the resulting stabilization of prices, the ironing
out of market fluctuations, and the fact that prices were almost
always set by mutual consent of government and the representatives
of each industry. It is no wonder that Harry A. Wheeler, president
of the United States Chamber of Commerce, wrote in the summer
of 1917 that war “is giving business the foundation for the kind
of cooperative effort that alone can make the U.S. economically
efficient.” Or that the head of American Telephone and Telegraph
hailed the perfecting of a “coordination to ensure complete cooperation
not only between the Government and the companies, but between
the companies themselves.” The wartime cooperative planning was
working so well, in fact, opined the chairman of the board of
Republic Iron and Steel in early 1918, that it should be continued
in peacetime as well.[28]

The vitally
important steel industry is an excellent example of the workings
of war collectivism. The hallmark of the closely knit control
of the steel industry was the close “cooperation” between government
and industry, a cooperation in which Washington decided on broad
policy, and then left it up to Judge Elbert Gary, head of the
leading steel producer, United States Steel, to implement the
policy within the industry. Gary selected a committee representing
the largest steel producers to help him run the industry. A willing
ally was present in J. Leonard Replogle, head of American Vanadium
Co. and chief of the Steel Division of the WIB. Replogle shared
the long-standing desire of Gary and the steel industry for industrial
cartelization and market stability under the aegis of a friendly
federal government. Unsurprisingly, Gary was delighted with his
new powers in directing the steel industry, and urged that he
be given total power “to thoroughly mobilize and if necessary
to commandeer.” And Iron Age, the magazine of the iron
and steel industry, exulted that

it has
apparently taken the most gigantic war in all history to give
the idea of cooperation any such place in the general economic
program as the country’s steel manufacturers sought to give
it in their own industry nearly ten years ago

with the
short-lived entente cordiale between Judge Gary and President
Roosevelt.[29]

It is true
that wartime relations between government and steel companies
were sometimes strained, but the strain and the tough threat of
government commandeering of resources was generally directed at
smaller firms, such as Crucible Steel, which had stubbornly refused
to accept government contracts.[30]

In the steel
industry, in fact, it was the big steelmakers – U.S. Steel,
Bethlehem, Republic, etc. – who, early in the war, had first
urged government price-fixing, and they had to prod a sometimes
confused government to adopt what eventually became the government’s
program. The main reason was that the big steel producers, happy
at the enormous increase of steel prices in the market as a result
of wartime demand, were anxious to stabilize the market at a high
price and thus insure a long-run profit position for the duration
of the war. The government–steel industry price-fixing agreement
of September, 1917, was therefore hailed by John A. Topping, president
of Republic Steel, as follows:

The steel
settlement will have a wholesome effect on the steel business
because the principle of cooperative-regulation has been established
with Government approval. Of course, present abnormal profits
will be substantially reduced but a runaway market condition
has been prevented and prosperity extended… Furthermore, stability
in future values should be conserved.[31]

Furthermore,
the large steel firms were happy to use the fixed prices as a
rationale for imposing controls and stability upon wages, which
were also beginning to rise. The smaller steel manufacturers,
on the other hand, often with higher costs, and who had not been
as prosperous before the war, opposed price-fixing because they
wished to take full advantage of the short-run profit bonanza
brought about by the war.[32]

Under this
regime, the steel industry achieved the highest level of profits
in its history, averaging twenty-five percent per year for the
two years of war. Some of the smaller steel companies, benefiting
from their lower total capitalization, did almost twice as well.[33]

The most
thoroughgoing system of price controls during the war was enforced
not by the WIB but by the separate Food Administration, over which
Herbert Clark Hoover presided as “Food Czar.” The official historian
of wartime price control justly wrote that the food control program
“was the most important measure for controlling prices which the
United States… had ever taken.”[34]

Herbert Hoover
accepted his post shortly after American entry into the war, but
only on the condition that he alone have full authority over food,
unhampered by boards or commissions. The Food Administration was
established without legal authorization, and then a bill backed
by Hoover was put through Congress to give the system the full
force of law. Hoover was also given the power to requisition “necessaries,”
to seize plants for government operation, and to regulate or prohibit
exchanges.

The key to
the Food Administration’s system of control was a vast network
of licensing. Instead of direct control over food, the
FA was given the absolute power to issue licenses for any and
all divisions of the food industry, and to set the conditions
for keeping the license. Every dealer, every manufacturer, distributor,
and warehouser of food commodities was required by Hoover to maintain
its federal license.

A notable
feature introduced by Hoover in his reign as Food Czar was the
mobilization of a vast network of citizen volunteers as a mass
of eager participants in enforcing his decrees. Thus, Herbert
Hoover was perhaps the first American politician to realize the
potential – in gaining mass acceptance and in enforcing government
decrees – in the mobilizing of masses through a torrent of
propaganda to serve as volunteer aides to the government bureaucracy.
Mobilization proceeded to the point of inducing the public to
brand as a virtual moral leper anyone dissenting from Mr. Hoover’s
edicts. Thus:

The basis
of all… control exercised by the Food Administration was the
educational work which preceded and accompanied its measures
of conservation and regulation. Mr. Hoover was committed thoroughly
to the idea that the most effective method to control foods
was to set every man, woman, and child in the country at the
business of saving food… The country was literally strewn
with millions of pamphlets and leaflets designed to educate
the people to the food situation. No war board at Washington
was advertised as widely as the U.S. Food Administration. There
were Food Administration insignia for the coat lapel, store
window, the restaurant, the train, and the home. A real stigma
was placed upon the person who was not loyal to Food Administration
edicts through pressure by the schools, churches, women’s clubs,
public libraries, merchants’ associations, fraternal organizations,
and other social groups.[35]

The method
by which the Food Administration imposed price control was its
requirement that its licensees should receive “a reasonable margin
of profit.” This “reasonable margin” was interpreted as a margin
over and above each producer’s costs, and this cost-plus “reasonable
profit” for each dealer became the rule of price control. The
program was touted to the public as a means of keeping profits
and food prices down. Although the Administration certainly
wished to stabilize prices, the goal was also and more importantly
to cartelize. Industry and government worked together to
make sure that individual maverick competitors did not get out
of line; prices in general were to be set at a level to guarantee
a “reasonable” profit to everyone. The goal was not lower
prices, but uniform, stabilized, non-competitive prices for all.
The goal was far more to keep prices up than to keep them
down. Indeed, any overly greedy competitor who tried to increase
his profits above prewar levels by cutting his prices,
was dealt with most severely by the Food Administration.

Let us consider
two of the most important food-control programs during World War
I: wheat and sugar. Wheat price control, the most important program,
came in the wake of wartime demand, which had pushed wheat prices
up very rapidly to their highest level in the history of the United
States. Thus, wheat increased by one dollar a bushel in the course
of two months at the start of the war, reaching the unheard of
price of three dollars a bushel. Control came in the wake of agitation
that government must step in to thwart “speculators” by fixing
maximum prices on wheat. Yet, under pressure by the agriculturists,
the government program fixed by statute, not maximum prices
for wheat but minima; the Food Control Act of 1917 fixed
a minimum price of two dollars a bushel for the next year’s wheat
crop. Not content with this special subsidy, the President proceeded
to raise the minimum to two dollars and twenty-six cents a bushel
in mid-1918, a figure that was then the precise market price for
wheat. This increased minimum effectively fixed the price of wheat
for the duration of the war. Thus, the government made sure that
the consumers could not possibly benefit from any fall in wheat
prices.

To enforce
the artificially high price of wheat, Herbert Hoover established
the Grain Corporation, “headed by practical grain men,” which
purchased the bulk of the wheat crop in the United States at the
“fair price,” and then resold the crop to the nation’s flour mills
at the same price. To keep the millers happy, the Grain Corporation
guaranteed them against any possible losses from unsold stocks
of wheat or flour. Moreover, each mill was guaranteed that its
relative position in the flour industry would be maintained throughout
the war. In this way, the flour industry was successfully cartelized
through the instrument of government. Those few mills who balked
at the cartel arrangement were dealt with handily by the Food
Administration; as Garrett put it: “their operations… were reasonably
well controlled… by the license requirements.”[36]

The excessively
high prices of wheat and flour also meant artificially high costs
to the bakers. They, in turn, were taken under the cozy
cartel umbrella by being required, in the name of “conservation,”
to mix inferior products with wheat flour at a fixed ratio. Each
baker was of course delighted to comply with a requirement that
he make inferior products, which he knew was also being enforced
upon his competitors. Competition was also curtailed by the Food
Administration’s compulsory standardization of the sizes of bread
loaves, and by prohibiting price-cutting through discounts or
rebates to particular customers – the classic path toward
the internal breakup of any cartel.[37]

In the particular
case of sugar, there was a much more sincere effort to keep down
prices – due to the fact that the United States was largely
an importer rather than a producer of sugar. Herbert Hoover and
the Allied governments duly formed an International Sugar Committee,
which undertook to buy all of their countries’ sugar, largely
from Cuba, at an artificially low price, and then to allocate
the raw sugar to the various refiners. Thus, the Allied governments
functioned as a giant buying cartel to lower the price of their
refiners’ raw material.

Herbert Hoover
instigated the plan for the International Sugar Committee, and
the United States government appointed the majority of the five-man
committee. As Chairman of the committee, Hoover selected Earl
Babst, president of the powerful American Sugar Refining Co.,
and the other American members also represented refiner interests.
The ISC promptly fixed a sharp reduction of the price of sugar:
lowering the New York price of Cuban raw sugar from its high market
price of six and three-quarter cents per pound in the summer of
1917 to six cents per pound. When the Cubans understandably balked
at this artificially forced price reduction of their cash crop,
the United States State Department and the Food Administration
collaborated to coerce the Cuban government into agreement. Somehow,
the Cubans were unable to obtain import licenses for needed wheat
and coal from the United States Food Administration, and the result
was a severe shortage of bread, flour, and coal in Cuba. Finally,
the Cubans capitulated in mid-January, 1918, and the import licenses
from the United States were rapidly forthcoming.[38] Cuba also induced to prohibit all
sugar exports except to the International Sugar Committee.

Apparently,
Mr. Babst insured an extra bonus to his American Sugar Refining
Company; for, shortly, officials of competing American refineries
were to testify before Congress that this company had particularly
profited from the activities of the International Sugar Committee
and from the price that it fixed on Cuban sugar.[39]

Although
the American government pursued with great diligence the goal
of pushing down raw material prices for United States refiners,
it also realized that it could not force down the price of raw
sugar too low, since the government had to consider the
marginal United States cane and beet-sugar producers, who had
to receive their duly appointed “fair return.” Jointly to harmonize
and subsidize both the sugar refiners and the sugar growers
in the United States, Mr. Hoover established a Sugar Equalization
Board that would simultaneously keep the price of sugar low
to Cuba while keeping it high enough for the American producers.
The Board accomplished this feat by buying the Cuban sugar at
the fixed low price and then reselling the crop to the refiners
at a higher price to cover the American producers.[40]

The result
of the artificially low prices for sugar was, inevitably, to create
a severe sugar shortage, by reducing supplies and by stimulating
an excessive public consumption. The result was that sugar consumption
was then severely restricted by federal rationing of sugar.

It is not
surprising that the food industries were delighted with the wartime
control program. Expressing the spirit of the entire war-collectivist
regime, Herbert Hoover, in the words of Paul Garrett:

maintained,
as a cardinal policy from the beginning, a very close and intimate
contact with the trade. The men, whom he chose to head his various
commodity sections and responsible positions, were in a large
measure tradesmen… The determination of the policies of control
within each branch of the food industry was made in conference
with the tradesmen of that branch… It might be said… that
the framework of food control, as of raw material control, was
built upon agreements with the trade. The enforcement of the
agreements once made, moreover, was intrusted in part to the
cooperation of constituted trade organizations. The industry
itself was made to feel responsible for the enforcement of all
rules and regulations.[41]

Also separate
from the War Industries Board were the nation’s railroads, which
received the greatest single ministration of government dictation
as compared to any other industry. The railroads, in fact, were
seized and operated directly by the federal government.

As soon as
the United States entered the war, the Administration urged the
railroads to unite as one in behalf of the war effort. The railroads
were delighted to comply, and quickly formed what became known
as the Railroads’ War Board, promising faithfully to pursue a
goal that they had long sought in peacetime: to cease competitive
activities and to coordinate railroad operations.[42] Daniel Willard, president of the
Baltimore & Ohio Railroad and Bernard Baruch’s predecessor
as head of the WIB, happily reported that the railroads had agreed
to vest their War Board with complete authority to override individual
railroad interests. Under its Chairman, Fairfax Harrison of the
Southern Railroad, the War Board established a Committee on Car
Service to coordinate national car supplies. Aiding the coordination
effort was the Interstate Commerce Commission, the longtime federal
regulatory body for the railroads. Once again, the government-promoted
monopoly was an inspiration to many who were looking ahead to
the peacetime economy. For several years the railroads had been
agitating for “scientific management” as a means of achieving
higher rates from the ICC and a governmentally imposed cartelization;
but they had been thwarted by the pressure of the organized shippers,
the industrial users of the railroads.

But now even
the shippers were impressed. Max Thelen, chairman of the California
Railroad Commission, president of the National Association of
Railway and Utilities Commissions, and the leading spokesman for
the organized shippers, agreed that the critical railroad problem
was “duplication,” and the “irrational” lack of complete inter-railroad
coordination. And Senator Francis G. Newlands (D., Nev.), the
most powerful congressman on railroad affairs as the chairman
of a joint committee on transportation regulation, opined that
the wartime experience was “somewhat shattering on old views regarding
antitrust laws.”[43]

Soon, however,
it became clear that the system of voluntary private coordination
was not really working well. Traffic departments of individual
roads persisted in competitive practices; the railroad brotherhood
unions were persistently demanding substantial wage increases;
and the railroads and organized shippers locked horns over railroad
demands for an across-the-board rate increase. All groups felt
that regional coordination and overall efficiency would best be
achieved by outright federal operation of the railroads. The shippers
first proposed the scheme as a method of achieving coordination
and to forestall higher freight rates; the unions seconded the
plan in order to obtain wage increases from the government; and
the railroads cheerfully agreed when President Wilson assured
them that each road would be guaranteed its 1916/17 profits –
two years of unusually high profits for the railroad industry.
With the federal government offering to take on the headaches
of wartime dislocation and management, while granting the roads
a very high guaranteed profit for doing nothing, why shouldn’t
the railroads leap to agreement?

The most
enthusiastic Administration proponent of federal operation of
the railroads was Secretary of the Treasury McAdoo, a former New
York railroad executive and close associate of the Morgan interests,
who in turn were the leading underwriters and owners of railroad
bonds. McAdoo was rewarded by being named head of the United States
Railroad Administration after Wilson seized the railroads on December
28, 1917.

Federal rule
by the Morgan-oriented McAdoo proved to be a bonanza for the nation’s
railroads. Not only were the railroads now fully monopolized by
direct government operation, but also the particular railroad
executives now found themselves armed with the coercive power
of the federal government. For McAdoo chose as his immediate assistants
a group of top railroad executives, and all rate-setting powers
of the ICC were shifted to the railroad-dominated Railroad Administration
for the duration.[44] The significance of the shift is
that the railroads, although largely responsible for the inception
and growth of the ICC as a cartelizing agency for the railroad
industry, had seen control of the ICC slip into the hands of the
organized shippers in the decade before the war. This had meant
that the railroads had found it very difficult to win freight
rate increases from the ICC. But now the wartime federal control
of the railroads was shunting the shippers aside.[45] McAdoo’s brazen appointment of railroad
men to virtually all the leading positions in the Railroad Administration,
to the virtual exclusion of shippers and academic economists,
greatly angered the shippers, who had launched an intense barrage
of criticism of the system by midsummer of 1918. ‘This barrage
came to a head when McAdoo increasingly turned the direction of
the RA, including the appointment of regional directors, over
to his principal assistant, railroad executive Walker D. Hines.
Shippers and ICC commissioners complained that

railroad
lawyers from the entire country descended on Washington, told
their troubles to other railroad lawyers serving on McAdoo’s
staff, and were “told to go into an adjoining room and dictate
what orders they want.”[46]

As in the
case of the War Industries Board, the railroad executives used
their coercive governmental powers to deal a crippling blow to
diversity and competition, on behalf of monopoly, in the name
of “efficiency” and standardization. Again, over the opposition
of shippers, the RA ordered the compulsory standardization of
locomotive and equipment design, eliminated “duplicate” (i.e.,
competitive) passenger service and coal transportation, shut down
off-line traffic offices, and ordered the cessation of competitive
solicitation of freight by the railroads.

All of these
edicts reduced railroad services to the hapless shippers. There
were still other coerced reductions of service. One ended the
shippers’ privileges of specifying freight routes – and thereby
of specifying the cheapest routes for shipping their goods.
Another upset the peacetime practice of making the railroads liable
for losses and damages to shipments; instead, the entire burden
of proof was placed upon the shippers. Another RA ruling –
the “sailing day plan” – ordered freight cars to remain in
their terminals until filled, thus sharply curtailing service
to small-town shippers.

The granting
of absolute power to the railroad-dominated RA was cemented by
the Federal Control Act of March, 1918, which ex post facto
legalized the illegal federal takeover. Working closely with railroad
lobbyists, the RA, backed by the full support of President Wilson,
was able to drive through Congress the transfer of rate-making
powers to itself from the ICC. Furthermore, all power was taken
away from the invariably shipper-dominated state railroad commissions.

The RA hastened
to exercise its rate-setting powers, announcing freight rate increases
of twenty-five percent across the board in the spring of 1918
– an act that permanently cemented shipper hostility to the
system of federal operation. To add insult to injury, the new
higher rates were set without any public hearings or consultation
with other agencies or interests involved.

II.

Historians
have generally treated the economic planning of World War I as
an isolated episode dictated by the requirements of the day and
having little further significance. But, on the contrary, the
war collectivism served as an inspiration and as a model for a
mighty army of forces destined to forge the history of twentieth-century
America. For big business, the wartime economy was a model of
what could be achieved in national coordination and cartelization,
in stabilizing production, prices, and profits, in replacing old-fashioned
competitive laissez-faire by a system that they could broadly
control and that would harmonize the claims of various powerful
economic groups. It was a system that had already abolished much
competitive diversity in the name of standardization. The wartime
economy especially galvanized such business leaders as Bernard
Baruch and Herbert Hoover, who would promote the cooperative “association”
of business trade groups as Secretary of Commerce during the 1920s,
an associationism that paved the way for the cooperative statism
of Franklin Roosevelt’s AAA and NRA.

The wartime
collectivism also held forth a model to the nation’s liberal intellectuals;
for here was seemingly a system that replaced laissez-faire not
by the rigors and class hatreds of proletarian Marxism, but by
a new strong State, planning and organizing the economy in harmony
with all leading economic groups. It was, not coincidentally,
to be a neomercantilism, a “mixed economy,” heavily staffed by
these selfsame liberal intellectuals. And finally, both big business
and the liberals saw in the wartime model a way to organize and
integrate the often-unruly labor force as a junior partner in
the corporatist system – a force to be disciplined by their
own “responsible” leadership of the labor unions.

For the rest
of his life, Bernard Mannes Baruch sought to restore the lineaments
of the wartime model. Thus, in summing up the experience of the
WIB, Baruch extolled the fact that:

many businessmen
have experienced during the war, for the first time in their
careers, the tremendous advantages, both to themselves and to
the general public, of combination, of cooperation and common
action…

Baruch called
for the continuance of such corporate associations, in “inaugurating
rules” to eliminate “waste” (i.e., competition), to exchange trade
information, to agree on the channeling of supply and demand among
themselves, to avoid “extravagant” forms of competition and to
allocate the location of production. Completing the outlines of
a corporate state, Baruch urged that such associations be governed
by a federal agency, either the Department of Commerce or the
Federal Trade Commission

an agency
whose duty it should be to encourage, under strict Government
supervision, such cooperation and coordination…[47]

Baruch also
envisioned a federal board for the retraining and channeling of
labor after the war. At the very least, he urged standby legislation
for price control and for industrial coordination and mobilization
in the event of another war.[48]

During the
1920s and 1930s, Bernard Baruch served as a major inspiration
of the drive toward a corporate state; moreover, many of the leaders
of this drive were men who had served under him during the heady
days of the WIB and who continued to function frankly as “Baruch’s
men” in national affairs. Thus, aided by Baruch, George N. Peek,
of the Moline Plow Company, launched in the early 1920s the drive
for farm price supports through federally organized farm cartels
that was to culminate in President Hoover’s Federal Farm Board
in 1929 and then in Roosevelt’s AAA. Peek’s farm equipment business,
of course, stood to benefit greatly from farm subsidies. Hoover
appointed as first Chairman of the FFB none other than Baruch’s
old top aide from World War I, Alexander Legge of International
Harvester, the leading farm machinery manufacturer. When Franklin
Roosevelt created the AAA, he first offered the job of director
to Baruch, and then gave the post to Baruch’s man, George Peek.

Neither was
Baruch laggard in promoting a corporatist system for industry
as a whole. In the spring of 1930, Baruch proposed a peacetime
reincarnation of the WIB as a “Supreme Court of Industry.” In
September of the following year, Gerard Swope, head of General
Electric and brother of Baruch’s closest confidant Herbert Bayard
Swope, presented an elaborated plan for a corporate state that
essentially revived the system of wartime planning. At the same
time, one of Baruch’s oldest friends, former Secretary William
Gibbs McAdoo, was proposing a similar plan for a “Peace Industries
Board.” After Hoover dismayed his old associates by rejecting
the plan, Franklin Roosevelt embodied it in the NRA, selecting
Gerard Swope to help write the final draft, and picking another
Baruch disciple and World War aide General Hugh S. Johnson –
also of the Moline Plow Company – to direct this major instrument
of state corporatism. When Johnson was fired, Baruch himself was
offered the post.[49]

Other leading
NRA officials were veterans of war mobilization. Johnson’s chief
of staff was another old friend of Baruch’s, John Hancock, who
had been Paymaster General of the Navy during the war and had
headed the naval industrial program for the War Industries Board;
other high officials of the NRA were Dr. Leo Wolman, who had been
head of the production-statistics division of the WIB; Charles
F. Homer, leader of the wartime Liberty Loan drive; and General
Clarence C. Williams, who had been Chief of Ordnance in charge
of Army war purchasing. Other WIB veterans highly placed in the
New Deal were Isador Lubin, United States Commissioner of Labor
Statistics in the New Deal; Captain Leon Henderson of the Ordnance
Division of the WIB; and Senator Joseph Guffey (D., Pa.), who
had worked in the WIB on conservation of oil, and who helped pattern
the oil and coal controls of the New Deal on the wartime Fuel
Administration.[50]

Another leading
promoter of the new cooperation subsequent to his experience as
wartime planner was Herbert Clark Hoover. As soon as the war was
over, Hoover set out to “reconstruct America” along the lines
of peacetime cooperation. He urged national planning through “voluntary”
cooperation among businessmen and other economic groups under
the “central direction” of the government. The Federal Reserve
System was to allocate capital to essential industries and thereby
to eliminate the competitive “wastes” of the free market. And
in his term as Secretary of Commerce during the 1920s, Hoover
assiduously encouraged the cartelization of industry through trade
associations. In addition to inaugurating the modern program of
farm price supports in the Federal Farm Board, Hoover urged the
coffee buyers to form a cartel to lower buying prices; established
a buying cartel in the rubber industry; led the oil industry in
working toward restrictions on oil production in the name of “conservation”;
tried repeatedly to raise prices, restrict production, and encourage
marketing co-ops in the coal industry; and tried to force the
cotton textile industry into a nationwide cartel to restrict production.
Specifically in furtherance of the wartime abolition of thousands
of diverse, and competitive products, Hoover continued to impose
standardization and “simplification” of materials and products
during the 1920s. In this way, Hoover managed to abolish or “simplify”
about a thousand industrial products. The “simplification” was
worked out by the Department of Commerce in collaboration with
committees from each industry.[51]

Grosvenor
Clarkson hailed the fact that:

it is probable
that there will never again be such a multiplicity of styles
and models in machinery and other heavy and costly articles
as there was before the restrictions necessitated by the war…
The ideas conceived and applied by the War Industries Board
in war are being applied in peace by the Department of Commerce…[52]

Not the least
of the influential groups dazzled and marked by the experience
of war collectivism were the liberal intellectuals. Never before
had so many intellectuals and academicians swarmed into government
to help plan, regulate, and mobilize the economic system. The
intellectuals served as advisers, technicians, framers of legislation,
and administrators of bureaus. Furthermore, apart from the rewards
of newly acquired prestige and power, the war economy held out
to such intellectuals the promise of transforming the society
into a “third way” completely different from the laissez-faire
past that they scorned or the looming proletarian Marxism that
they reviled and feared. Here was a planned corporate economy
that seemed to harmonize all groups and classes under a strong
and guiding nation-state with the liberals themselves at or near
the helm. In a notable article, Professor Leuchtenburg saw the
war collectivism as “a logical outgrowth of the Progressive movement.”[53] He demonstrated the enthusiasm of the Progressive
intellectuals for the social transformation effected by the war.
Thus, the New Republic hailed the “revolutionizing” of
society by means of the war; John Dewey hailed the replacement
of production for profit and “the absoluteness of private property”
by production for use. Economists were particularly enchanted
by the “notable demonstration of the power of war to force concert
of effort and collective planning,” and looked for “the same sort
of centralized directing now employed to kill their enemies abroad
for the new purpose of reconstructing their own life at home.”[54]

Rexford Guy
Tugwell, ever alert to the advance of social engineering, was
soon to look back wistfully upon “America’s wartime socialism”;
lamenting the end of the war, he declared that “only the Armistice
prevented a great experiment in control of production, control
of price, and control of consumption.” For, during the war, the
old system of industrial competition had “melted away in the fierce
new heat of nationalistic vision.”[55]

Not merely
the NRA and AAA, but virtually the entire New Deal apparatus –
including the bringing to Washington of a host of liberal intellectuals
and planners – owed its inspiration to the war collectivism
of World War I. The Reconstruction Finance Corporation, founded
by Hoover in 1932 and expanded by Roosevelt’s New Deal, was a
revival and expansion of the old War Finance Corporation, which
had loaned government funds to munitions firms. Furthermore, Hoover,
after offering the post to Bernard Baruch, named as first Chairman
of the RFC, Eugene Meyer, Jr., an old protg of Baruch’s, who
had been managing director of the WFC. Much of the old WFC staff
and method of operations were taken over bodily by the new agency.
The Tennessee Valley Authority grew out of a wartime government
nitrate and electric-power project at Muscle Shoals, and in fact
included the old nitrate plant as one of its first assets. Moreover,
many of the public power advocates in the New Deal had been trained
in such wartime agencies as the Power Section of the Emergency
Fleet Corporation. And even the innovative government corporate
form of the TVA was based on wartime precedent.[56]

Wartime experience
also provided the inspiration for the public housing movement
of the New Deal. During the war, the Emergency Fleet Corp. and
the United States Housing Corp. were established to provide housing
for war workers. The war established the precedent of federal
housing, and also trained architects like Robert Kohn, who functioned
as chief of production for the housing division of the United
States Shipping Board. After the war, Kohn exulted that “the war
has put housing ‘on the map’ in this country”; and in 1933, Kohn
was duly named by President Roosevelt to be the director of the
New Deal’s first venture into public housing. Furthermore, the
Emergency Fleet Corp. and the United States Housing Corp. established
large-scale public housing communities on planned “garden city”
principles (Yorkship Village, N.J.; Union Park Gardens, Del.;
Black Rock and Crane Tracts, Conn.), principles finally remembered
and put into effect in the New Deal and afterward.[57]

The oil and
coal controls established in the New Deal also rested on the precedent
of the wartime Fuel Administration. Indeed, Senator Joseph Guffey
(D., Pa.), leader in the coal and oil controls, had been head
of the petroleum section of the War Industries Board.

Deeply impressed
with the “national unity” and mobilization achieved during the
war, the New Deal established the Civilian Conservation Corps
to instill the martial spirit in America’s youth. The idea was
to take the “wandering boys” off the road and “mobilize” them
into a new form of American Expeditionary Force. The Army, in
fact, ran the CCC camps; CCC recruits were gathered at Army recruiting
stations, equipped with World War I clothing, and assembled in
army tents. The CCC, the New Dealers exulted, had given a new
sense of meaning to the nation’s youth, in this new “forestry
army.” Speaker Henry T. Rainey (D., Ill.) of the House of Representatives
put it this way:

They [the
CCC recruits] are also under military training and as they come
out of it… improved in health and developed mentally and physically
and are more useful citizens… they would furnish a very valuable
nucleus for an army.[58]

III.

Particularly
good evidence of the deep imprint of war collectivism was the
reluctance of many of its leaders to abandon it when the war was
finally over. Business leaders pressed for two postwar goals:
continuance of government price-fixing to protect them against
an expected postwar deflation; and a longer-range attempt to promote
industrial cartelization in peacetime. In particular, businessmen
wanted the price maxima (which had often served as minima
instead) to be converted simply into outright minima for the postwar
period. Wartime quotas to restrict production, furthermore, needed
only to remain in being to function as a frank cartelizing for
raising prices in time of peace.

Accordingly,
many of the industrial War Service Committees, and their WIB Section
counterparts, urged the continuance of the WIB and its price-fixing
system. In particular, section chiefs invariably urged continued
price control in those industries that feared postwar deflation,
while advocating a return to a free market wherever the specific
industry expected a continuing boom. Thus, Professor Himmelburg
concluded:

Section
chiefs in their recommendations to the Board consistently followed
the wishes of their industries in urging protection if the industry
expected price declines and release of all controls when the
industry expected a favorable postwar market.[59]

Robert S.
Brookings, Chairman of the Price-Fixing Committee of the WIB,
declared that the WIB would be “as helpful… during the reconstruction
period as we have during the war period in stabilizing values.”[60]

From the
big-business world, meanwhile, Harry A. Wheeler, president of
the United States Chamber of Commerce, presented to Woodrow Wilson
in early October, 1918, an ambitious scheme for a “Reconstruction
Commission,” to be composed of all the economic interests of the
nation.

The WIB itself
concurred, and urged the President to allow it to continue after
the war. Baruch himself urged upon Wilson the continuation of
at least the minimum price-fixing policies of the WIB. However,
Baruch was gulling the public when he foresaw a postwar WIB as
guarding against both inflation and deflation; there was no inclination
to impose maximum prices against inflation.

The great
problem with these ambitious plans of both industry and government
was President Wilson himself. Perhaps a lingering attachment to
the ideals, or at least to the rhetoric, of free competition prevented
the President from giving any favorable attention to these postwar
schemes.[61] The attachment was particularly nourished by Secretary
of War Newton D. Baker, of all Wilson’s advisers the closest to
a believer in laissez-faire. Throughout October, 1918, Wilson
rejected all of these proposals. The response of Baruch and the
WIB was to put further pressure on Wilson during early November,
by publicly predicting and urging that the WIB would definitely
be needed during demobilization. Thus The New York Times
reported, the day after the Armistice, that

War Industries
Board officials declared there would be much work for that organization
to do. They foresee no serious industrial dislocation with the
Government’s grip on all war industries and material held tight.[62]

The President
remained adamant, however, and on November 23 he ordered the complete
disbanding of the WIB by the end of the year. The disappointed
WIB officials accepted the decision without protest; partly because
of expected congressional opposition to any attempt to continue,
partly from the hostility to continued controls by those industries
anticipating a boom. Thus, the shoe industry particularly chafed
at any continuing controls.[63] The industries favoring controls,
however, urged the WIB at least to ratify their own price minima
and agreements for restricting production for the coming winter,
and to do so just before the disbandment of the agency. The Board
was sorely tempted to engage in this final exploit, and indeed
was informed by its legal staff that it could successfully continue
such controls beyond the life of the agency even against the will
of the President. The WIB, however, reluctantly turned down requests
to this effect by the acid, zinc, and steel manufacturers on December
11.[64] It only rejected the price-fixing plans, however,
because it feared being overturned by the courts should the Attorney
General challenge such a decision.

One of the
most ardent advocates of continued WIB price control was the great
steel industry. Two days after the Armistice, Judge Gary of U.S.
Steel urged the WIB to continue its regulations, and declared
that “The members of the steel industry desire to cooperate with
each other in every proper way…” Gary urged a three-month extension
of price-fixing, with further gradual reductions that would prevent
a return to “destructive” competition. Baruch replied that he
was personally “willing to go to the very limit,” but he was blocked
by Wilson’s attitude.[65]

If the WIB
itself could not continue, perhaps the wartime cartelization could
persist in other forms. During November, Arch W. Shaw, Chicago
industrialist and head of the Conservation Division of the WIB
(whose wartime work in fostering standardization was being transferred
to the Department of Commerce) and Secretary of Commerce William
Redfield agreed on a bill to allow manufacturers to collaborate
in “the adoption of plans for the elimination of needless waste
in the public interest,” under the supervision of the Federal
Trade Commission. When this proposal fizzled, Edwin B. Parker,
Priorities Commissioner of the WIB, proposed in late November
a frankly cartelizing bill that would allow the majority of the
firms in any given industry to set production quotas that would
have to be obeyed by all the firms in that industry. The Parker
plan won the approval of Baruch, Peek, and numerous other government
officials and businessmen, but WIB’s legal counsel warned that
Congress would never give its consent.[66] Another proposal that interested
Baruch was advanced by Mark Requa, Assistant Food Administrator,
who proposed a United States Board of Trade to encourage and regulate
industrial agreements that “promoted the national welfare.”[67]

Whatever
the reason, Bernard Baruch failed to press hard for these proposals,
and so they died on the vine. If Baruch failed to press matters,
however, his associate George Peek, head of the Finished Products
Division of the WIB, was not so reticent. By mid-December, 1918,
Peek wrote Baruch that the postwar era must retain the “benefits
of proper cooperation.” In particular,

proper
legislation should be enacted to permit cooperation in industry,
in order that the lessons we have learned during the war may
be capitalized… in peacetime… Conservation;… standardization
of products and processes, price fixing under certain conditions,
etc., should continue with Government cooperation.[68]

By late December,
Peek was proposing legislation for:

some kind
of an Emergency Peace Bureau… in order that businessmen may,
in conjunction with such a Bureau, have an opportunity to meet
and cooperate with Governmental cooperation…[69]

The leading
business groups endorsed similar plans. In early December, the
Chamber of Commerce of the United States called a meeting of the
various industrial War Service Committees to convene as a “Reconstruction
Congress of American Industry.” The Reconstruction Congress called
for revision of the Sherman Act to permit “reasonable” trade agreements
under a supervisory body. Furthermore, a nationwide Chamber referendum,
in early 1919, approved such a proposal by an overwhelming majority;
and president Harry Wheeler urged the “cordial acceptance by organized
business” of regulation that would ratify business agreements.
The National Association of Manufacturers, before the war devoted
to competition, warmly endorsed the same goals.

The last
gasp of wartime cartelization came in February, 1919, with the
establishment by the Department of Commerce of the Industrial
Board.[70] Secretary of Commerce William C. Redfield, formerly
president of the American Manufacturers Export Association, had
long championed the view that government should promote and coordinate
industrial cooperation. Redfield saw an entering wedge with the
transfer of the WIB’s Conservation Division to his department
shortly after the Armistice. Redfield continued the wartime stimulation
of trade associations, and to that end established an advisory
board of former WIB officials. One of these advisers was George
Peek; another was Peek’s assistant on the WIB, Ohio lumber executive
William M. Ritter. It was Ritter, in fact, who originated the
idea of the Industrial Board.

The Industrial
Board, conceived by Ritter in January, 1919, and enthusiastically
adopted and pushed by Secretary Redfield, was a cunning scheme.
On its face, and as promoted to President Wilson and to others
in the Administration and Congress, the Board was merely a device
to secure large price reductions, and thereby to lower
the inflated level of general prices and to stimulate consumer
demand. It was therefore seemingly unrelated to the previous cartelizing
drive and hence won the approval of the President, who established
the new Board in mid-February. At Ritter’s urging, George Peek
was named chairman of the IB; other members included Ritter himself;
George R. James, head of a major Memphis dry-goods concern and
former chief of the Cotton and Cotton Linters section of the WIB;
Lewis B. Reed, vice-president of the U.S. Silica Co. and another
former assistant to Peek; steel castings manufacturer Samuel P.
Bush, former head of the WIB’s Facilities Division; Atlanta steel-fabricating
manufacturer Thomas Glenn, also a veteran of the WIB; and two
“outsiders,” one representing the Labor Department and the other
the Railroad Administration.

No sooner
did the IB get under way than it pursued its real, but previously
camouflaged, purpose: not to reduce, but rather to stabilize prices
at existing high levels. Moreover, the method of stabilization
would be the longed-for but previously rejected path of ratifying
industrial price agreements arrived at in collaboration with the
Board. Deciding on this cartelizing policy in early March, the
IB moved toward the first application in a conference with, unsurprisingly,
the steel industry on March 19–20, 1919. Opening the conference,
Chairman George Peek grandly declared that the event might prove
“epoch-making,” especially in establishing “real genuine cooperation
between Government, industry, and labor, so that we may eliminate
the possibility of the destructive forces…”[71] The steel men were of course delighted,
hailing the “great Chance…
to come into close contact with the Government itself…”[72] The IB told the steel industry that any agreement
to sustain prices agreed upon by the conference would be immune
from the antitrust laws. Not only was the price list offered by
the IB to the steel men still very high even if moderately lower
than existing prices; but Peek agreed to announce to the public
that steel prices would not be lowered further for the remainder
of the year. Peek advised the steel men that his statement would
be their biggest asset; for “I don’t know what I wouldn’t have
given in times past if in my own business I could say that the
government of the United States says this is as low a price as
you could get.”[73]

The IB-steel
agreement lowered steel prices by a modest ten to fourteen percent.
The small, high-cost steel producers were disgruntled, but the
big steel firms welcomed the agreement as a coordinated, orderly
reduction of inflated prices, and especially welcomed the Board’s
guarantee of the fixed price for the remainder of the year.

The elated
IB proceeded with similar conferences for the coal and building
materials industries, but two dark clouds promptly appeared: the
refusal of the government’s own Railroad Administration to pay
the fixed, agreed-upon, price for steel rails and for coal; and
the concern of the Justice Department for the evident violation
of the antitrust laws. The railroad men running the RA particularly
balked at the reduced but still high price that they were going
to be forced to pay for steel rails – at a rate that they
declared was at least two dollars per ton above the free-market
price. Walker D. Hines, head of the RA, denounced the TB as a
price-fixing agency, dominated by steel and other industries,
and he called for the abolition of the Industrial Board. This
call was seconded by the powerful Secretary of the Treasury Carter
Glass. The Attorney General concurred that the IB’s policy was
illegal price-fixing, and in violation of the antitrust laws.
Finally, President Wilson dissolved the Industrial Board in early
May, 1919; wartime industrial planning had at last been dissolved,
its formal cartelization to reappear a decade and a half later.

Yet remnants
of wartime collectivism still remained. The high wartime minimum
wheat price of two dollars and twenty-six cents a bushel was carried
over to the 1919 crop, continuing until June, 1920. But the most
important carry-over of war collectivism was the Railroad Administration:
the government’s operation of the nation’s railroads. When William
Gibbs McAdoo resigned as head of the RA at the end of the war,
he was succeeded by the previous de facto operating head,
railroad executive Walker D. Hines. There was no call for immediate
return to private operation, because the railroad industry generally
agreed upon drastic regulation to curb or eliminate “wasteful”
railroad competition and coordinate the industry, to fix prices
to insure a “fair profit,” and to outlaw strikes through compulsory
arbitration. This was the overall thrust of railroad sentiment.
Furthermore, being in effective control of the RA, the roads were
in no hurry to return to private operation and jurisdiction by
the less reliable ICC. Although McAdoo’s plan to postpone by five
years the given 1920 date for return to private operation gained
little support, Congress proceeded to use its time during 1919
to tighten the monopolization of the railroads.

In the name
of “scientific management,” Senator Albert Cummins (R., Iowa)
proceeded to grant the railroads’ fondest dreams. Cummins’ bill,
warmly approved by Hines and railroad executive Daniel Willard,
ordered the consolidation of numerous railroads, and would set
the railroad rates according to a “fair,” fixed return on capital
investment. Strikes would be outlawed, and all labor disputes
settled by compulsory arbitration. For their part, the Association
of Railroad Executives submitted a legislative plan similar to
the Cummins Bill. Also similar to the Cummins Bill was the proposal
of the National Association of Owners of Railroad Securities,
a group composed largely of savings banks and insurance companies.
In contrast to these plans, the Citizens National Railroad League,
consisting of individual railroad investors, proposed coerced
consolidation into one national railroad corporation, and the
guaranteeing of minimum earnings to this new road.

All of these
plans were designed to tip the prewar balance sharply in favor
of the railroads and against the shippers, and, as a result, the
Cummins Bill, in passing the Senate, ran into trouble in the House.
The trouble was fomented by the shippers, who demanded a return
to the status quo ante when the shipper-dominated ICC was in charge.
Furthermore, for their part the wartime experience had embittered
the shippers, who, along with the ICC itself, demanded a return
to the higher quality service provided by railroad competition
rather than the increased monopolization provided by the various
railroad bills. Unsurprisingly, however, one of the leading nonrailroad
business groups favoring the Cummins Bill was the Railway Business
Association, a group of manufacturers and distributors of railroad
supplies and equipment. The House of Representatives, in its turn,
passed the Esch Bill, which essentially reestablished the prewar
rule of the ICC.

President
Wilson had put pressure on Congress to make a decision by threatening
the return of the railroads to private operation by the given
date of January 1, 1920, but, under pressure of the railroads
who were anxious to push the Cummins Bill, Wilson extended the
deadline to March 1. Finally, the joint conference committee of
Congress reported out the Transportation Act of 1920, a compromise
that was essentially the Esch Bill returning the railroads to
the prewar ICC, but adding the Cummins provisions for a two-year
guarantee to the railroads to set rates providing a “fair return”
of five and a half percent on investment. Furthermore, on the
agreement of both shippers and the roads, the power to set minimum
railroad rates was now granted to the ICC. This agreement was
the product of railroads eager to set a floor under freight rates,
and shippers anxious to protect budding canal transportation against
railroad competition. Furthermore, although railway union objections
blocked the provision for the outlawing of strikes, a Railroad
Labor Board was established to try to settle labor disputes.[74]

With
the return of the railroads to private operation in March, 1920,
war collectivism finally and at long last seemed to pass from
the American scene. But pass it never really did; for the inspiration
and the model that it furnished for a corporate state in America
continued to guide Herbert Hoover and other leaders in the 1920s,
and was to return full-blown in the New Deal, and in the World
War II economy. In fact, it supplied the broad outlines for the
Corporate Monopoly State that the New Deal was to establish, seemingly
permanently, in the United States of America.

Notes

[1] From A New History of Leviathan, Ronald Radosh
and Murray N. Rothbard, eds., New York: E.P. Dutton & Co.,
1972, pp. 66–110)

[2] On the attitudes of the mercantilists toward labor, see
Edgar S. Furniss, The
Position of the Laborer in a System of Nationalism
(New
York: Kelley & Millman, 1957). Thus, Furniss cites the English
mercantilist William Petyt, who spoke of labor as a “capital
material… raw and undigested… committed into the hands of
supreme authority, in whose prudence and disposition it is to
improve, manage, and fashion it to more or less advantage.”
Furniss adds that “it is characteristic of these writers that
they should be so readily disposed to trust in the wisdom of
the civil power to ‘improve, manage and fashion’ the economic
raw material of the nation.” p.41.

[3] On the role of the House of Morgan, and other economic
ties with the Allies in leading to the American entry into the
war, see Charles Callan Tansill, America
Goes to War
(Boston: Little,
Brown & Co., 1938), pp. 32–134.

[4] Quoted in Paul A. C. Koistinen, “The ‘Industrial-Military
Complex’ in Historical Perspective: World War I,” Business
History Review (Winter, 1967), p. 381.

[5] The leading historian of World War I mobilization of
industry, himself a leading participant and director of the
Council of National Defense, writes with scorn that the scattered
exceptions to the chorus of business approval “revealed a considerable
lack… of that unity of will to serve the Nation that was essential
to the fusing of the fagots of individualism into the unbreakable
bundle of national unity.” Grosvenor B. Clarkson, Industrial
America
in the World War
(Boston: Houghton Muffin Co., 1923),
p. 13. Clarkson’s book, incidentally, was subsidized by Bernard
Baruch, the head of industrial war collectivism; the manuscript
was checked carefully by one of Baruch’s top aides. Clarkson,
a public relations man and advertising executive, had begun
his effort by directing publicity for Coffin’s industrial preparedness
campaign in 1916. See Robert D. Cuff, “Bernard Baruch: Symbol
and Myth in Industrial Mobilization,” Business History Review
(Summer, 1969), p. 116.

[6] Clarkson, op. cit., p. 21

[7] Ibid., p. 22

[8] Koistinen, op. cit., p. 385

[9] Originating the idea of the CND was Dr. Hollis Godfrey,
president of the Drexel Institute, an industrial training and
management education organization. Also influential in establishing
the CND was the joint military-civilian Kerner Board, headed
by Colonel Francis J. Kerner, and including as its civilian
members: Benedict Crowell, chairman of Crowell & Little
Construction Co. of Cleveland and later Assistant Secretary
of War; and R. Goodwyn Rhett, president of the People’s Bank
of Charleston, and president as well of the Chamber of Commerce
of the United States. Ibid., pp. 382, 384.

[10] As one of many examples, the CND’s “Cooperative Committee
on Copper” consisted of: the president of Anaconda Copper, the
president of Calumet and Hecla Mining, the vice-president of
Phelps Dodge, the vice-president of Kennecott Mines, the president
of Utah Copper, the president of United Verde Copper, and Murray
M. Guggenheim of the powerful Guggenheim family interests. And
the American Iron and Steel Institute furnished the representatives
of that industry. Clarkson, op. cit., pp. 496–497; Koistinen,
op. cit., p. 386.

[11] Clarkson, p. 28.

[12] Scott and Willard had successively been Chairman, which
post was then offered to Homer Ferguson, president of the Newport
News Shipbuilding Co. and later head of the United States Chamber
of Commerce.

[13] Clarkson, op. cit., p. 63

[14] Ibid., pp. 154, 159.

[15] Ibid., p. 215.

[16] Ibid., p. 230.

[17] Margaret L. Coit, Mr.
Baruch
(Boston: Houghton Muffin Co., 1957), p. 219.

[18] Clarkson, op. cit., p. 312

[19] Ibid., p. 303.

[20] Ibid., pp. 300–301.

[21] Ibid., p. 309. On the War Industries Board,
the commodity sections, and on big-business sentiment paving
the path for the coordinated industry-government system, see
James Weinstein, The
Corporate Ideal in the Liberal State, 1900–1918

(Boston: Beacon Press, 1969), p. 223 and passim.

[22] In The Nation’s Business (August, 1918), pp.
9–10. Quoted in Koistinen, op cit., pp. 392–393.

[23] Clarkson, op. cit., p. 313.

[24] See George P. Adams, Jr., Wartime
Price Control
(Washington, D.C.: American Council on
Public Affairs, 1942), pp. 57, 63–64. As an example, the
government fixed the price of copper f.o.b. New York at 23
cents per pound. The Utah Copper Co., which produced over 8
percent of the total copper output, had estimated costs of 11.8
cents per pound. In this way, Utah Copper was guaranteed nearly
100 percent profit on costs. Ibid., p. 64n.

[25] Clarkson, op. cit

[26] Adams, op. cit., pp. 57–58.

[27] Weinstein, op. cit., pp. 224–225.

[28] Melvin I. Urofsky, Big
Steel and the
Wilson
Administration
(Columbus, Ohio: Ohio State University
Press, 1969), pp. 152–153

[29] Urofsky, op. cit., pp. 153–157. In his important
study of business-government relations in the War Industries
Board, Professor Robert Cuff has concluded that federal regulation
of industry was shaped by big-business leaders, and that relations
between government and big business were smoothest in those
industries, such as steel, whose industrial leaders had already
committed themselves to seeking government-sponsored cartelization.
Robert D. Cuff, “Business, Government, and the War Industries
Board” (Doctoral dissertation in history, Princeton University,
1966).

[30] Urofsky, op. cit., p. 154.

[31] In Iron Age (September 27, 1917). Quoted in
Urofsky, pp. 216–217

[32] Urofsky, pp. 203–206. Also see Robert D. Cuff and Melvin
I. Urofsky, “The Steel Industry and Price-Fixing During World
War I,” Business History Review (Autumn, 1970), pp. 291–306.

[33] Urofsky, op. cit., pp. 228–233.

[34] Paul Willard Garrett, Government
Control Over Prices
(Washington, D.C.: Government Printing
Office, 1920), p.42.

[35] Garrett, op. cit., p. 56

[36] Ibid., p. 66.

[37] Ibid., p. 73.

[38] See Robert F. Smith, The United States and
Cuba (New York: Bookman Associates, 1960), pp. 20–21.

[39] Smith, op. cit., p. 191.

[40] Garrett, op. cit., pp. 78–85.

[41] Ibid. pp. 55–56.

[42] See K. Austin Kerr, American
Railroad Politics, 1914–1920
(Pittsburgh: University
of Pittsburgh Press, 1968), pp. 44 ff.

[43] Kerr, op. cit., p.48.

[44] McAdoo’s “cabinet,” which assisted him in running the
railroads, included Walker D. Hines and Edward Chambers, respectively
chairman of the board and vice-president of the Santa Fe R.R.;
Henry Walters, chairman of the board of the Atlantic Coast R.R.;
Hale Holden, of the Burlington R.R.; A.H. Smith, president of
the New York Central R.R.; John Barton Payne, formerly chief
counsel of the Chicago Great Western R.R.; and Comptroller of
the Currency John Skelton Williams, formerly chairman of the
board of the Seaboard R.R. Hines was to be McAdoo’s principal
assistant; Payne became head of traffic. The Division of Operation
was headed by Carl R. Gray, president of the Western Maryland
R.R. One Unionist, W.S. Carter, head of the Brotherhood of Firemen
and Engineers, was brought in to head the Division of Labor.

[45] Kerr, op. cit., pp. 14–22.

[46] Ibid., p. 80.

[47] Bernard M. Baruch, American
Industry in the War
(New York: Prentice-Hall, 1941),
pp. 105–106.

[48] Coit, op. cit., pp. 202–203, 218.

[49] Ibid., pp. 440–443.

[50] See William E. Leuchtenburg, “The New Deal and the
Analogue of War,” in John Braeman et al., eds., Change
and Continuity in Twentieth-Century
America
(New York: Harper & Row, 1967), pp. 122–123.

[51] See Herbert Hoover, Memoirs
(New York: Macmillan, 1952), Vol. II, pp. 27, 66–70; on
Hoover and the export industries, Joseph Brandes, Herbert
Hoover and Economic Diplomacy
(Pittsburgh: University
of Pittsburgh Press, 1962); on the oil industry, Gerald D. Nash,
United
States Oil Policy, 1890–1964
(Pittsburgh: University
of Pittsburgh Press, 1968); on coal, Ellis W. Hawley, “Secretary
Hoover and the Bituminous Coal Problem, 1921–1928,” Business
History Review (Autumn, 1968), pp. 247–270; on cotton
textiles, Louis Galambos, Competition
and Cooperation
(Baltimore: Johns Hopkins Press, 1966).

[52] Clarkson, op. cit., pp. 484–485.

[53] Leuchtenburg, op. cit., p. 84n.

[54] Ibid., p. 89.

[55] Ibid., pp. 90–92. It was very similar considerations
that also brought many liberal intellectuals, especially including
those of the NewRepublic, into at least a temporary admiration
for Italian Fascism. Thus, see John P. Diggins, “Flirtation
with Fascism: American Pragmatic Liberals and Mussolini’s Italy,”
American Historical Review (January, 1966), pp. 487–506.

[56] Leuchtenburg, op. cit., pp. 109–110.

[57] Ibid., pp. 111–112.

[58] Ibid., p. 117. Roosevelt names union leader
Robert Fechner, formerly engaged in war labor work, as director
of the CCC to provide a civilian camouflage for the program.
p. 115n.

[59] Robert F. Himmelburg, “The War Industries Board and
the Antitrust Question in November 1918,” Journal of American
History (June, 1965), p. 65.

[60] Ibid.

[61] Ibid., pp. 63–64; Urofsky, op. cit.,
pp. 298–299.

[62] Quoted in Himmelburg, p. 64.

[63] Favoring continuing price controls were such industries
as the chemical, iron and steel, lumber, and finished products
generally. Opposing industries included abrasives, automotive
products, and newspapers. Ibid., pp. 62, 65, 67.

[64] Urofsky, op. cit., pp. 306–307.

[65] Ibid., pp. 294–302.

[66] Himmelburg, op. cit., pp. 70–71.

[67] Ibid., p. 72; Weinstein, op. cit., pp.
231–232.

[68] Himmelburg, op. cit., p. 72.

[69] Robert D. Cuff, “A ‘Dollar-a-Year Man’ in Government:
George N. Peek and the War Industries Board,” Business History
Review (Winter, 1967), p. 417.

[70] On the Industrial Board, see Robert F. Himmelburg,
“Business, Antitrust Policy, and the Industrial Board of the
Department of Commerce, 1919,” Business History Review
(Spring, 1968), pp. 1–23.

[71] Himmelburg, “Industrial Board,” p. 13.

[72] Professor Urofsky surmised from the orderly and very
moderate price reductions in steel during the first months of
1919 that Robert S. Brookings had quietly given the steel industry
the green light to proceed with its own price-fixing. Urofsky,
op. cit., pp. 307–308.

[73] Himmelburg, “Industrial Board,” p. 14n.

[74] On the maneuvering leading to the Transportation Act
of 1920, see Kerr, op. cit., pp. 128–227.

Murray
N. Rothbard
(1926–1995) was the author of Man,
Economy, and State
, Conceived
in Liberty
, What
Has Government Done to Our Money
, For
a New Liberty
, The
Case Against the Fed
, and many
other books and articles
. He
was also the editor – with Lew Rockwell – of The
Rothbard-Rockwell Report
.

Murray
Rothbard Archives

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